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CONTENTS:-
1.Introduction 1-22.Theoretical framework of cash flow management 3-15
3.Methodology 16-17
I. Need of the study
II. Scope and period of the study
III. Objectives of the study
IV. Methodology
V. Limitations of cash flow analysis
4.Profile of the industry 18-34
5.Profile of the company 35-48
6.Analysis and interpretation 49-91
7.Findings and suggestions 92
8.Conclusions 93
9.Bibliography 94
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CASH FLOW STATEMENT:
INTRODUCTION
From the financial point of view a firm basically generates cash
and spends cash. It generates cash when it issues securities, rises a
bank loan sells a product disposes an asset, so a so forth. It spends cash
when it redeems securities, pays interest and dividends. Purchases
materials, acquires an asset etc. The activities that generate cash and
called sources of cash and the activities that absorb cash are called uses
of cash.
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MEANING OF CASH FLOW STATEMENT
A cash flow statement is a statement depicting change in cash
position from one period to another. For example, if cash balance of a
business is shown by its balance sheet on 31st
December 1978 at rs 20,000 while the cash balance as its balance sheet on 31stDecember
1979is Rs 30,000 there has been an inflow of cash rs 10,000 in the
year 1979 as compared to the year 1978. The cash statement explains
the reasons for such inflows or out flows cash, as the case might be. It
also helps management in making plans for the immediate future. A
projected sash flow statement of a cash budget will help the management
in ascertaining how much cash will be available to meet obligations to
trade creditors, to pay bank loans and to pay dividend to the
shareholders. A proper planning of cash resources will enable the
management to have cash available whenever needed and put it to some
profitable or productive use in case there is surplus cash available.
The term cash here stands for cash and bank balances it has
already been explained in the previous chapter that the term funds will
exclude from its purview all other current assets and current liabilities
and the terms funds flow statement and cash flow statement will have
synonymous meanings. However, for the purpose of this study, we are
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calling this part of this study cash flow analysis and not funds flow
analysis.
PREPARATION OF CASH FLOW STATEMENT
A cash flow statement can be prepared on the same pattern on
which a funds flow statement is prepared. The change in the cash
position from one period to another is computed by taking in to sources
and application of cash .
Sources of cash:sources of cash can be both internal as well as
external.
1.Internal sources:
Cash from operations is the main internal source. The net profit
shown by the profit and loss account will have to be adjusted for non-
cash items for finding out from operations. Some of these items as
follows:
i. Depreciation:
Depreciation does not result in out flow of cash and therefore net profit
will have increased by the amount of depreciation or development rebate
charged in order to find out the real cash generated from operations.
ii. Amortization of intangible assets:
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Goodwill , preliminary expenses, etc. when written off against profits
reduce the net profits without effecting the cash balance. The amounts
written off should, therefore ,be added back to profits to find out the
cash form operations.
iii. Loss on sale of fixed assets :
It does not result in outflow of cash and , therefore , should be added
back to profits .
iv. Gains form sale of fixed assets :
Since sale of fixed assets is taken as a separate source of cash, it should
be deducted from net profits.
v. Creation of reserves :
If profit for the year has been arrived at after charging transfers to
reserves, such transfers should be added back to profits .in case
operations show a net loss, such net loss after making adjustments
for non cash items will be shown as an application of cash.
Thus ,cash form operations is computed on the pattern of
computation of Funds from operations ,as explained in the earlierchapter. However, to find out real cash from operations ,as explained
in the earlier chapter. However to find out real cash from operations
,adjustments will have to be made for changes in current assets and
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current liabilities arising on account of operations ,viz., trade debtors,
trade creditors ,bills receivable ,bills payable ,etc.
For the sake of convenience computation of cash from operations
can be studied by taking two different situations :
1)When all transactions are cash transactions ,and
2)When all transactions are not cash transactions.
A.When all transactions are cash transactions :
The computation of cash from operations will be very simple in
this case. The net profit as shown by the profit and loss account will be
taken as the amount of cash form operations.
B.When all transactions are not cash transaction :
In the example given above , we have computed cash from
operations on the basis that all transactions are cash transactions. Itdoes not really happen in actual practice. The business sells goods on
credit. It purchases goods on credits. Certain expenses are always out
standing and some of the incomes are not immediate realized. Under
such circumstances, the net profit made by a firm can not generate
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Cash from operations = Net profit
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equipment amount of cash. The computation of cash from operations in
such a situation can be done conveniently if it is done intwostages :
1)Computation of funds (i.e., working capital) from operations as
explained in the preceding chapter and
2)Adjustments in the funds so calculated for the changes in the
current assents (excluding cash) and current liabilities.
Adjustments for changes in current assets and current liabilities
In the illustration given above the cash from operations has been
computed on the same pattern on which funds from operations are
computed. As a matter of fact, the funds from operations in this case.
This is because of the presumptions that are all cash transactions and
all goods have been sold . however, there may be credit purchases ,credit
sales, outstanding and prepaid expenses,etc.
In such a case from operations. This has been explained in the
following pages :
I.Effect of credit sales :
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In business there are both case sales and credit sales. In case, the total
sales are Rs .30000 out of which the credit sales are Rs.10000 it means
sales have contributed only on the extent of Rs.20000in providing cash
from operations.
Thus, while computing cash from operations. It will be necessary
that suitable adjustments for outstanding debtors are also made.
The cash from operations can calculated on the basis of the
Cash from operations =Net profit+Debtors outstanding at the beginning
of the Accounting year
-Debtors outstanding at
the end of the Accounting year
Or
II.Effect of credit purchases:
Whatever has been stated regarding credit sales is also applicable
to credit purchase. The only difference will be that decrease in creditors
from one period to another will result I decrease of cash from operations
because it means more cash payments have been made to the creditors
8
Cash from operations = Net profit + Decrease in debtors
Or
- Increase in debtors
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which will result I out flow of cash. On the other hand increase in
creditors from operations from because less payment has been made to
the creditors for goods supplied which will result in increase of cash
balance at the disposal of the business.
Thus, the effect of credit purchases can be shown with the help of
the following equation in computing cash from operations:
+ increase in creditors
Cash from operations =Net profit or
-decrease in creditors
Effect of opening and closing stock:
The amount of opening stock is charged to the debit side of the
profit and loss Account. It thus reduces the net profit without reducing
the cash from operations. Similarly, the amount of closing stock is put on
the credit side of the profit and loss Account.It thus increases the amount of net profit without increasing the cash
from operations.
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The effect of change in stock on cash from operations can now be
put as follows.
+Decrease in stock
Cash from operations =Net profit or
- Increase in stock
Effect of out standing expenses, incomes received in advance, etc.
The effect of these items on cash from operations is similar to the effect
of creditors. This means any increase in these items will result in
increase in cash from operations while any decrease means decrease in
cash from operations. This is because net profit from operations is
computed after charging to all expenses has not been paid; this will
result in decrease in net profit without of a corresponding decrease in
cash from operations. Similarly, income received in advances not taken in
to account while calculating profit from operations, science it relates to
the next year. It therefore, means cash from operations will be higher
then the actual net profit as shown by the profit and loss Account.
Thus the effect of income received in advance and out standing
expenses on cash from operations, can be shown as follows:
10
+increase in outstanding expenses
+increase in income received in advance
Cash from operations = Net profit
-decrease in outstanding expenses
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Effect of prepaid expenses and outstanding incomes:
The prepaid expenses and outstanding income on cash from operations
is similar to the effect of debtors. While computing net profit from
operations, the expenses only for the accounting year are charged to the
profit and loss account. Expenses paid in advance are not charged to the
profit and loss account. Thus, pre-payment of expenses does not
decrease net profit for the year but it decrease cash from operations
.similarly, income earned during a year is credited to the profit and loss
account whether it has been received or not. Thus, income, which hasnot been received but which has become due, increases the net profit for
the year without increasing cash form operations.
Thus, the effect of prepaid expenses and accrued incomes in cash
from operations can be shown in the following equation:
The over all effect of stock, debtors, creditors, outstanding expenses,
income, received advance, prepaid expenses and accrued income can be
shown in the form of the following formula:
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+decrease in prepaid expenses
+decrease in accrued income
Cash from operations =Net profit
-increase in prepaid expenses
+ Decrease in debtors
+Decrease in stock
+ Decrease in prepaid expenses
+ Decrease in accrued income
+Increase in creditors
+Increase in outstanding expenses
Cash from operations= Net profit
- Increase in debtors
- Increase in stock
-Increase in prepaid expenses
- Increase in accrued income
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The above formula may be summarized in the form of following
general rules:
AND
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Increase in a current asset
Decrease in a current liability
Results in
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2.External sources:
The external sources of cash are:
1) Issue of new shares:
In case shares have been issued for cash, the net cash received (ie. after
deducting expenses on issue of shares or discount on issue of shares will
be taken as a source of cash.
2) Raising long-term loans:
Long term loans such as issue of debentures, loans from industrial
financial corporation, state financial corporations, I.D.B.I.Etc., are
sources of cash. They should be shown separately.
3) Purchase of plant and machinery on deferred payments:
In case plant and machinery has been purchase on a deferred payment
system, it should be shown as a separate source of cash to the extent of
deferred credit. However, the cost of machinery purchased will be shown
as an application of cash.
4) Short term borrowings cash credits from banks:
Short term borrowing, etc.From banks increase cash available and they
have to be shown separately under this ahead.
5) Sale of fixed assets, investments, etc:
It results in generation of cash and therefore, is a source of cash.
13
Decrease in current asset
Increase in current liability
Results in
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Decrease in various current assets and increase in various current
liabilities may be taken as external sources of cash, if they are not
adjusted while computing cash from operations.
Application of cash:
Application of cash may take any of he fallowing forms:
Purchase of fixed assets:
Cash may be utilized for additional fixed assets or renewals or
replacement of existing fixed assets.
Payment of long term loans :
The payment of long term loans such as loans from financial
institutions or debentures results in decrease in cash. it is therefore an
application of cash.
Decrease in deferred payment liabilities:
A payment for plant and machinery purchases on deferred
payment basis has to be made as for the agreement. It is there fore an
application of cash.
Loss on amount of operations:
Loss suffered on amount of business operations will result in out
flow of cash.
Payment of tax:
Payment of tax will result in decrease if cash and hence it is an
application of cash.
Payment of dividend:
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This decreases the cash available for business and hence it is
application of cash.
Decreased in unsecured loans, deposits:
The decrease in these liabilities denotes that they have been paid
off to that extant. It results, therefore, in out flow of cash.
UTILITY OF CASH FLOW ANALYSIS
A cash flow statement is useful for short-term planning. A
business enterprise needs sufficient cash to meet its various obligationsin the near future such as payment of debts maturing in the near future,
expenses of the business, etc. A historical analysis of the difference
sources and applications of cash will enable the management to make
reliable cash flow projections for the immediate future. It may then plan
out for investment of surplus or meeting the deficit if any. Thus a cash
flow analysis is an important financial tool for the management its chief
advantages are as follows:
Help in efficient of cash management:cash flow analysis helps in
evaluating financial policies and cash position. Cash is the basis for all
operations and hence a projected cash flow statement will enable the
management to plan and coordinate the financial operations properly.
The management can known how much cash is needed, from which
source will be derived, how much can be generated internally and how
much can be obtained from outside.
Help in internal financial management:cash flow analysis provides
information about funds, which will be available from operations. This
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will help the management in determining policies regarding internal
financial management eg. possibility of repayment of long term debt
dividend policies of planning replacement of plant and machinery.
Discloses the movement of cash:cash flow statement discloses the
complete story of the cash movement. The increase in or decrease of cash
and the reasons therefore can be known , it discloses the reasons for low
cash balance in spite of heavy operating profits of for heavy cash balance
in spite of low profits.
However , comparison of original forecast with the actual resultshighlights the trends of movements of cash, which may otherwise go
undetected.
Discloses the success or failure of cash planning:the extant of
success or failure of cash planning can be known by comparing the
projected cash flow statement and necessary remedial measures can be
taken.
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CASH FORECASTS
The cash forecasts help in determining the amount of cash
required and the sources from which it will be obtained during different
time periods. This is also known as cash budgeting .the different
methods of cash budgeting or making cash forecasts are explained in the
chapter budgetary control given later in the book.
Classified cash flow statement
The cash flow statements are classified in to three classes.
Cash flows from operating activities
Cash flows from inverting activities
Cash flows from financing activities
Through this format calls for more details. It provides useful
information on how cash flows have been influenced by different kinds of
decisions. Given the greater informational contact of such a format , the
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discussion paper on cash flow statements prepared by the accounting
principles board of the institute of charted accounting of India
recommends this format. Incidentally the listing guidelines of stock
exchanges in India now require that all listed companies must include a
cash flow statement prepared accounting to the format suggested in he
decision proper in their annual reports.
Format of cash flow statement
CASH FLOW STATEMENT
For the year ending on
Balance as on 1-1-200
Cash balance .. ..
Bank balance ..
Add : sources of cash
Issue of shares
Raising of long term loans .
Sale of fixed assets ..
Short term operations ..
Cash from operations
Profit as per profit and loss account
Add/Less: adjustment for non cash items
Add: increase in liabilities
Decrease in current assets Less: increase in current assets
Decrease in current liabilities . ..
Total cash available (1) ..
Less: Applications of cash:
Redemption of redeemable preference shares
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Redemption of long term loans ..
Purchases of fixed assets ..
Decrease in deferred payment liabilities ..
Cash out flow on account of operations
Tax paid
Dividend paid
Decreased in unsecured loans deposits etc .
Total applications (2)
Closing balance *
Cash balance ..
Bank balance .*it should tally with the balance as shown by
NEED OF THE STUDY:
To study has great significance and will provide benefits to various
parties who directly or indirectly interact with the company.
It is important because it is beneficial to the employs and offer
motivation by showing how actively they are contributing for the
companys growth.
It is beneficial to the management of the company as it provides a clear
cut picture with regard to the cash flow statements.
SCOPE AND PERIOD OF THE STUDY:
The scope of the study is limited toDr. Reddys laboratories
limited only and the period of he study 2013-2014
OBJECTIVES OF THE STUDY:
To assess the ability of the enterprise.19
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To plan and coordinate the financial operations properly.
To know much cash is needed from which source it will be derived,
to know how much will be available to meet obligations to trade
creditors.
How much can be generated internally and how much could be
obtained from out side.
METHODOLOGY:
For the study of cash flows of Dr. Reddys laboratories limited. The
secondary data that is, the financial report of the company from the year2013-2014 are taken into consideration.
The theoretical contents are gathered from eminent text books and
reference library at Dr. Reddys laboratories limited.
The financial data and information is gathered from annual reports
of the co internal records.
Interpretations and conclusions are purely based on my opinion.
TITLE OF STUDY:
The title of the study is CASH FLOW MANAGEMENT in
DR.REDDYS LABORATORIES LTD, tech ops, unit-1, bollaram.
LIMITATIONS OF CASH FLOW ANALYSIS:
Cash flow analysis is a useful tool of financial analysis. However, it has
been own limitations. These limitations are as under :
Cash flow statement can not be equated with the income
statement. An income statement takes into account both cash as
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well as non cash items and, therefore, net cash flow does not
necessarily mean net income of the business.
The cash balance as disclosed by the cash flow statement may not
represent the real liquid position of the business since it can be
easily influenced by postponing purchases and other payments.
Cash flow statement cannot replace the income statement or the
funds flow statement. Each of them has a separate function to
perform.
In spite of these limitations, it can be said that cash flow statement is a
useful supplementary instrument. It discloses the volume as well as the
speed at which the cash flows in the different segments of the business
this helps the management in knowing the amount of capital tied up in a
particular segment of the business. The technique of cash flow analysis,
when used in conjunction with ratio analysis, serves as a barometer in
measuring the profitability and financial position of the business.
INDUSTRIAL PROFILE:-
1. IntroductionIndias pharmaceutical sector has been the subject of much
conjecture recently because evolving intellectual property (IP) laws are
sure to alter the status quo. As a knowledge driven industry,
pharmaceuticals are especially sensitive to regulatory changes that affect
IP. In the past, Indian pharmaceutical firms have derived considerable
revenues by selling copies of Western companies patented products. In
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2012, this practice will likely come to an end, when India implements
stronger IP protection laws. What is less obvious is how the industry
will react in the post-2012 environment. Existing research has analyzed
2012 from a number of angles, ranging from consumer-focused to
investor-focused, and used both theoretical (top-down) and company-
specific (bottom-up) methods.
By focusing on the strategic activities of twelve influential
companies, this paper makes projections about how the Indian
pharmaceutical industry might develop in the coming decades. It can be
argued that this method puts too much emphasis on the role of the firm
in the larger industry context, and overlooks other factors such as patent
enforcement, market segmentation, and demand. However, given that
firm strategies are derived from assessments of external factors, it is
reasonable to invest some confidence in them. Furthermore, the extent to
which pharmaceutical companies control their own destinies must beobserved. Consider, for example, the prospect of creating new drugs in
India. Indias capacity to produce its own IP is very much contingent on
the success of firms such as Dr. Reddys
Laboratories (DRL) and Ranbaxy.
1.1 Structure of paper
The principal objective of this paper is to project the effects that
2012 IP laws are likely tohave on the Indian pharmaceutical industry.
Section 2 provides background on pharmaceuticals in India, whilesection 3 strikes at the heart of the issue in question by reporting and
analyzing how companies are preparing for 2012.
1.2 Summary of findings
This research supports a number of conclusions about the impact
of reforms on the pharmaceutical industry. Increased patent protection
need not spell disaster for Indian pharmaceutical companies, even
though the current practice of profiting from other companies
IP will likely cease to be a strategic option. The future success of Indian
pharmaceutical companies hinges on their ability to find productive roles
for themselves in the post-2012 environment.The most publicized reaction of Indian firms to 2012 has been the
development of drug discovery programs by companies such as DRL,
Ranbaxy, Wockhardt, and Dabur, who plan to use product patent
protection as an incentive to produce their own IP. To be sure, Indian
drug discovery programs are still in their infancy and there remain
considerable obstacles on the horizon. Indian companies have neither
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the capital bases nor the experience of their multinational company
(MNC) competitors. On the other hand, odds are high that some firms in
India will succeed in drug discovery within the next few years. If
successful, India will be the one of the first emerging economies to
produce cutting-edge technology. Not all Indian pharmaceutical firms
possess the resources, the will, or the know-how to initiate drug
discovery, but there is hope for lesser-endowed companies after 2012.
Consider the following points. First, 90 percent1 of the Indian
pharmaceutical market consists of second and third generation drugs
that are no longer subject to patent protection in the developed world.
After 2012, Indian companies will be able to continue to produce such
drugs. It has even been suggested that the market for these older drugs
will increase as the prices for newer, on-patent drugs increase. Some
companies have already established themselves as exporters of generic
drugs to the developed world, and 2012 patent legislation does not pose athreat to these revenue sources. Second, Indian drug companies have
advantages over MNCs in the Indian market in a number of no
technological areas, including marketing, distribution, and traditional
medicines. Some Indian companies are leveraging these no technological
strengths (and even building entire businesses around them) as they
approach 2012. Third, mergers and acquisitions (M&A) have become
increasingly common. By matching companies with complementary
strengths, the M&A process promises to better equip Indian companies to
compete with MNCs in years ahead. To the extent that M&A activity has
occurred between Indian and multinational firms, the distinctions
between the two groups are increasingly blurred. Four of the twelve firms
in the sample for this paper were MNC subsidiaries. Accordingly, the
paper also offers insights into these companies 2012-related strategies.
Most MNCs that already have a presence in India are building up the
capacity to localize further their post-2012 Indian operations, pending
the specific nature of the new patent environment. The recently passed
Exclusive Marketing Rights (EMR) amendment to Indias patent act has
demonstrated to MNCs that the government will try to accommodate
their interests in coming years, but the post-2012 scenario for patentprotection is still far from clear. Section 3.3.7 details the currents that
underlie localization decisions for MNCs. MNCs without Indian presence
will undoubtedly enter the market after 2012. It is likely that a
considerable share of new entrants will rely on co-marketing
arrangements with local companies and other MNCs to distribute their
products.
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2. OverviewThis section provides the background to strategic issues discussed
in section 3. It is comprised of four subsections, each of which offersdifferent perspectives on pharmaceuticals in India. Section 2.1 highlights
major developments in the industry over the past century; section 2.2
presents a functional model of the pharmaceutical product cycle; and
section 2.3 examines the regulatory environment in which
pharmaceutical companies operate. Finally, section 2.4 considers the
evolution of domestic demand for drugs.
2.1 A Brief History (19001999)
The Indian pharmaceutical industry traces its roots to the 1903
formation of Bengal Chemical and Pharmaceutical Works in Calcutta by
Professor P.C. Roy. During the first half of the twentieth century, however,
and despite modest efforts on the part of the colonial government to spur
local production, India remained largely dependent on the UK, France,
and Germany for medicines.
The new and independent government in 1947which emphasized
industrialization to achieve self-relianceinvested heavily in
pharmaceuticals (among other industries) and curbed imports. 2 Yet, in
contrast to its policies toward other sectors, the government did not
discourage foreign firms from competing in India. In other sectors, self-reliance was pursued at high cost, but pharmaceutical policies
emphasized national health. Because there was no local substitute for
MNCs technology, the government did not discourage their presence in
the country. In fact, until 1970, the Indian pharmaceutical industry
consisted almost entirely of MNCs, most of which maintained minimal
physical operations in India.
The government took its first concrete steps toward self-reliance in
pharmaceuticals with the establishment of Hindustan Antibiotics Ltd.
(HAL) in 1954 and Indian Drugs and Pharmaceuticals Ltd. (IDPL) in
1961. IDPL (in spite of its grossly inefficient character) became
instrumental in the development of the industry by serving as the vehicle
for a comprehensive Soviet-sponsored program in which Russians
supplied machinery, personnel, and technical know-how to produce
antibiotics. The IDPL development program helped self-reliance in several
ways. First, it showed that it was possible to produce drugs in India at
competitive costs. Second, it developed human and physical capital,
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some of which moved in due course to other companies. Third, it spurred
the existence of a network of support institutes, pharmacy colleges, and
up and down stream businesses.
The IDPL program alone was insufficient to jumpstart local
industry. Local companies needed a way to compete with more
experienced and better endowed foreign firms; only then would the
industry have the critical mass to sustain itself. The 1970 Patent Act
made headway toward this end by recognizing patents on processes but
not patents on products, which in turn enabled local firms to legally
produce compounds that were patented elsewhere. Consequently, scores
of Indian pharmaceutical companies evolved to reverse-engineer and
cheaply sell copies of all major drugs. Although many Western observers
criticize the 1970 Patent Act on ethical grounds, it cannot be denied that
the legislation helped to develop Indias pharmaceutical industry. Over
the next thirty years, the industry would grow from a handful of MNCplayers to todays 16,000 licensed pharmaceutical companies. From
1970, local Indian firms reverse-engineered bulk drugs, which they
either sold wholesale or processed into simple formulations. Meanwhile,
MNCsreluctant to expose their IP in such a lawless marketlimited
their exposure to India. By 1997, MNCs had come to account for 30
percent of bulks and 20 percent of locally produced formulations.4 Most
MNCs did the bare minimum needed to stay in the Indian market (such
as producing simple formulations from imported bulks), while awaiting
the arrival of stronger patent protection. The few MNCs that have been
bullish toward India over the past thirty years have local managers to
thank for their aggressive posture.
Even without strong patent protection, the Indian pharmaceutical
industry matured during the 1980s. In particular, local companies grew
less reliant upon reverse-engineering for revenues. By increasingly
focusing on attributes such as novel delivery systems, Indian firms were
on their way to creating revenues based on their own added value.
Companies also started to produce products better tailored for their
markets than typical MNC products. For example, Lupin Labs introduced
its AKT-4 kits, which combined four antituberculosis (anti-TB) drugs thatwere generally administered together into a single package. The AKT-4
kits were well received by TB patients, who no longer had to worry about
the lack of availability of any one drug. (Selective discontinuation of anti-
TB drugs can lead to resistance and even relapse in TB patients.)
2.2 The Pharmaceutical Production Cycle
Pharmaceutical production consists of a number of discrete
activities. Because different phases of the pharmaceutical production25
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cycle require different types of resources and levels of funding, it is useful
to examine firms strategies within their operational contexts. In fact,
many of the conclusions drawn in section 3.3.1 are relevant only within
certain phases of the product cycle. This paper assumes that the product
cycle has four main components: 1) discovery, 2) clinical trials, 3)
production and manufacturing, and 4) marketing and distribution.
Large MNCs typically have activities that span all of these areas.
However, smaller companiesin India and elsewhereoften specialize in
one or more functions.
2.2.1 Discovery
In principle, discovering new drugs is a straightforward process.
First, chemists supply research scientists with compounds for testing, a
process referred to as lead generation. Generally, such compounds are
closely related molecules within a given disease area. In the West,
because the success of a discovery operation is at least partiallycontingent upon the number of leads, drug companies have recently
turned to combinatorial chemistry in order to accelerate the lead
generation process. (Combinatorial chemistry, with its high costs and
unproven effectiveness, has not yet gained widespread acceptance in
India.) Second, scientists screen molecules in a lab environment by
conductingin vitro(Petri dish) tests. Next, compounds with attractive
medical qualities are advanced to an animal house forin vivotests.In
vivotests are used to determine the minimum dosage necessary to
produce the intended results (efficacy) and the maximum nonlethal dose(toxicity) of the drug in question in animal subjects. Companies usually
file for patent protection of promising compounds midway throughin vivo
testing. Additionally, research scientists note any side effects that may be
associated with the drugs administration. Following the completion ofin
vivotests, companies may apply to conduct clinical trials on their
compounds in their desired markets. Permission to conduct clinical trials
depends on the results of both thein vitroandin vivotests, and their
conformity to generally accepted standards, as they are determined in
individual countries.
2.2.2 Clinical Trials
While testing on animals provides valuable and necessary insights
into a drugs medical characteristics, regulatory authorities in virtually
all markets require comprehensive clinical trials on human subjects
before granting production and marketing approval. The standards for
clinical trials are considerably more stringent than those for animal
testing. Doctors and other professionals who administer trials are
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required to pass reviews that are administered by independent
Institutional Review Boards (IRBs).6 Trials must employ double-blind test
procedures. Production facilities should be in accord with Good
Manufacturing Practices (GMP) as determined by the relevant regulatory
authority.7 This list is not exhaustive; clinical trials are exacting and,
consequently, expensive to administer. Furthermore, since different
countries have different standards, it is necessary to conduct clinical
trials in multiple locations (or at least simultaneously in the same
location) to achieve global distribution. Several analysts have suggested
that India is well suited for clinical trials because it has a strong
university system capable of producing low-cost human capital, and a
large population of poor and relatively disease-ridden potential test
subjects. Some local companies namely Cedilla and Ranbaxyhave
begun to fill this role. However, the issues alluded to above still prevent
global clinical trials from being a viable option for most Indianpharmaceutical companies. Therefore, while MNCs may begin to use
India for clinical trials in the near future, local companies will likely
enlist other firms to assist them in this capacity as
they discover new drugs.
2.2.3 Production and Manufacturing
Pharmaceutical production consists of bulk drug manufacturing
(in which active compounds are synthesized on an industrial scale) and
formulation manufacturing (in which active and inactive ingredients are
packaged into tablets, capsules, liquids, and injectibles. Bulk drugmanufacturing is more technology-intensive than formulation
manufacturing because, while the former draws from reverse-engineering
skills and requires knowledge of chemical processes, the latter merely
approximates the job of the local pharmacist on a larger scale. Indian
companies have proven themselves capable in both areas, as barriers to
entry are modest and domestic manufacturing guidelines are liberal.
However, to export products to developed markets, companies must bring
their factories into conformance with GMP standards (see section 2.3.1).
U.S. Food and Drug Administration (FDA) and UK Department of Health
and Social Services (DHSS) sanctioned factories are consequentlypremium assets in India. According to D.M. Gavaskar, managing director
of Knoll Pharmaceuticals, GMP-compliant facilities are 25-30 percent
more valuable than noncompliant facilities. This cost premium renders it
difficult for smaller companies to compete in manufacturing.
2.2.4 Marketing and Distribution
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Since fixed costssuch as those for R&D and clinical trials
represent a considerable portion of the total costs for developing drugs,
pharmaceutical profit margins are largely contingent upon the number of
customers reached. Therefore, companies strive to build their reputations
with doctors who prescribe pharmaceuticals and the patients who use
them. The largest pharmaceutical companies in India use field sales
forces, ranging in size from 500 to over 2,000, to bring their products to
the domestic market. According to Uday Bhansali of Arthur Andersen,
Indian companies have a decisive edge over MNCs in terms of
distribution because they better understand the nuances of the Indian
market for drugs.
Until recently, the Indian market alone provided sufficient
profitability for Indian pharmaceutical companies. But as this market
becomes more congested and the costs for producing new products
grows, it is increasingly necessary for companies to look for customersbeyond India and the developing world. Unfortunately, most Indian
companies do not produce enough products to justify investments in
global marketing and distribution. Established MNCs, on the other hand,
enjoy rapport throughout the worlds pharmaceutical markets. When
Merck develops a new product, for example, it can insert it into a large
distribution system. In order for Indias pharmaceutical companies to
match the distribution capabilities of the major international players,
they will likely have to join their own local forces, or enlist the support of
MNCs to supplement their efforts.
2.3 Regulatory Environment
It is almost impossible to engage in a discussion about
pharmaceuticals without addressing regulation. This is true for two
reasons. First, since drugs affect the health and well being of so many
citizens, government has an interest in assuring their adherence to
medical standards (see section 2.3.1) and availability (see section 2.3.2).
Second, in light of the fact that patentable research can represent up to
ten percent of a given drug companys cost structure, IP protection is
essential to provide firms with incentives to develop new drugs.2.3.1 Approval Process
Unlike other products, drugs must undergo extensive approval
procedures before they may be marketed. Indias domestic approval
standards are quite low, but export products must comply with
standards in all destination markets. Approvals are required for both
products and processes. After a new drug is developed, regulatory
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authorities oversee clinical trials, which determine efficacy, toxicity, and
side effects (see section 2.2.2). Companies are free to manufacture and
formulate all approved products for which they have production rights
(whether newly patented molecules or off-patent substances) as long as
the relevant authorities determine that their production facilities comply
with global GMP standards. GMP standards apply to equipment,
sanitation, and documentation.
2.3.2 Price Controls
Price controls are not nearly as important in todays
pharmaceutical sector as are other regulatory issues. This is partly
because market-clearing prices for controlled drugs have typically fallen
at or below price-controlled levels since the late 1970s. In cases where
price controls did pose problems, companies simply adjusted their
product portfolios accordingly, toward noncontrolled drugs. But price
controls are still worthy of mention insofar as past price control ordershave shaped current pharmaceutical operations. Furthermore, it is
plausible that price controls will assume a role of increasing importance
in the near future. In 1970, the government introduced the Drug Price
Control Order (DPCO) to guarantee public access to essential drugs, to
provide a reasonable rate of return to companies, and to ensure quality.9
In response to the DPCO, many firms concentrated on production of
(nonessential) drugs outside its scope. Some even divested themselves
completely of controlled drugs.
Prior to 1970, India employed Western-style patent legislation, andrecognized product patents in addition to process patents on drugs.
Under that environment, MNCs prospered while local companies lacked
the resources to enter the industry. The 1970 Patent Act, which
represented a change in favor of local producers, consisted of the
following key clauses:
1)No pharmaceutical product patents are admissible, only process
patents are acknowledged;
2)The term for a process patent is fourteen years;
3)Three years from filing, patents are deemed to be endorsed as
license of right;4)Patents must be worked within three years of filing;
5)The Indian government may use or authorize others to use the
patented invention.
In 1995, the government amended the 1970 Patent Act to conform
to the TRIPS accord of the Uruguay round of GATT. The main provisions
of the 1995 ordinance were:
1)The recognition of product patents;29
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2)Exclusive marketing rights (EMR) for new products from 2000
2012;
3)A mailbox provision for filing product patent applications during
the transitional
1.period from 19952012;
4)Twenty-year patent life;
5)Shifting of the burden of proof to the alleged infringer;
6)The extension of protection to include imported materials and
products.
2.3.4 Other Regulatory Issues
Aside from approvals, price controls, and patent policies, the
Indian government has used other tactics to regulate the pharmaceutical
and other sectors. These are primarily those of classic protectionism
(e.g., tariffs on imports, mandatory licensing, restrictions banning
imports, etc.). Liberalization efforts of 19911992 sought to disassembleprojectionist barriers and allow foreign firms to compete on more even
footing with their Indian counterparts. The main components of this
19911992 liberalization included:
a)MNCs treated as equal to Indian companies.
b)Automatic approval for 51 percent foreign equity proposals.
c)Automatic approval for foreign technology agreements.
d)Most bulk drugs (and their forms) delicensed.
e)Provision for a higher rate of return for companies
undertaking production from basic stages.2.4 The Indian Market
The previous three subsections have dealt primarily with factors
pertaining to pharmaceutical supply. This section examines the
characteristics of pharmaceutical demand. There is much anticipation
concerning the future of the Indian market for pharmaceuticals. With a
population of 950 million and a plethora of diseases, India is a desirable
market for drug companies. Furthermore, in spite of their low incomes,
Indian consumers have exhibited extraordinary pharmaceutical
purchasing habits. According to Ranjit Shahani, managing director of
Novartis India Limited, even though the dollar value of the Indian drugmarket is still too small to warrant serious attention, the market is one of
the largest in the world in terms of volume. For the Indian market to
justify large pharmaceutical investments, incomes and drug prices need
to rise, and it is safe to assume that this will occur. Barring unlikely
political collapse, India is bound to maintain its course of rapid
development. IMS Health estimates 8.6 percent annual growth for the
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Indian pharmaceutical market between 1998 and 2002, and forecasts
that the Indian market will be worth $7.8 billionits figure for the North
American drug market is $169.1 billionin 2002.16 Despite the
apparent precision of such projections, several unknowns complicate the
marketing initiatives of pharmaceutical companies. In particular, there is
insufficient information about: 1) the time frame of Indias rise to
economic prosperity, 2) the market reaction to liberalization (i.e.,
customers willingness to tolerate price increases), and 3) the structure of
the post-2012 market.
3. Impact of 2012 on Firm StrategiesThis section explores how Indian companies are reacting to
anticipated changes in patent protection following 2012. It will be
demonstrated that firm strategies are contingent upon expectations
about and capacities to adapt to the new patent environment.
3.1 Expectations
There are still many unknowns concerning the anticipated patent
legislation in 2012. Even if (as is expected) the new patent law nominally
complies with WTO guidelines, much uncertainty persists about its
specific operation. For example, the law may be interpreted in a manner
that favors Indian companies over MNCs. Furthermore, courts might be
unwilling or unable to enforce decisions.
3.1.1 New Delhis will to affect changeIn evaluating the degree to which the New Delhi government will
support stronger patent protection, it is useful to consider its standpoint
with respect to the costs and benefits associated with patent protection.
If perceived costs, such as increased prices and local firms weakened
competitive position, outweigh the benefits associated with innovation,
then New Delhi will be inclined to choose weak legislation and
enforcement. If the government believes that strong patent protection will
contribute positively to Indias overall social and industrial welfare, the
reverse will be true.
3.1.2 New Delhis ability to affect change
Even if the 2012 patent law fully complies with OPPI specifications,
it will be ineffective without proper enforcement. Patent examiners
possess skills not easily attainable in India, and they generally command
premium compensation. Lanjouw estimates that the Indian patent and
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trademark office (PTO) currently spends $330,000 per year, whereas its
U.S. counterpart operates on a $300 million budget.19 Obviously, New
Delhi will have to allocate more resources to its PTO if it is to function
effectively. In addition, India lacks other complementary private sector
features that are required of a well-functioning patent system, such as
patent attorneys and a general appreciation of IP issues.20
3.1.3 Firms views
In the final analysis, patents will probably not be as strong or as
well enforced as the OPPI firms and Western governments want, but the
post-2012 scenarioagainst the apparent wishes of New Delhiis sure
to represent a significant departure from the status quo. The potential
range of possible outcomes poses significant problems for firms
attempting to draft post-2012 strategies. Several of the MNCs covered in
this study have decided to refrain from making a judgement about 2012
until after the fact, but have devised expansion plans to distribute higherrevenue, easily prepared, first generation drugs in India. Other firms,
such as Sun Pharmaceuticals, have made detailed guesses about the
degree of patent protection they will receive, and have initiated costly,
irreversible investments based on their assumptions. A third set of firms,
such as Wockhardt, is more forward-looking than the first group, but
places a higher value on workable contingency strategies than the
second.
3.2 Capabilities
Because different companies have different strengths andweaknesses, two companies may well put forth identical analyses of the
post-2012 patent environment, yet react in completely different ways.
This subsection attempts to highlight some of the features that
differentiate companies from one another. Figure 1 presents a qualitative
snapshot of the functional capabilities of the companies that comprise
this papers sample. According to the sample, in all four areas of the
product cycle, the most prominent Indian companies are competitive with
MNCs in the domestic market. Indian companies excel particularly in
domestic marketing and distribution. For the MNCs, the domestic figures
may be somewhat misleading, because MNC subsidiaries often rely upontheir parent companies for assistance in specific areas, rather than
duplicating work themselves.
3.3.1 Size
Historically, large companies have dominated the global
pharmaceutical industry. This has been the case primarily because
certain phases of the product cycle (see section 2.2), such as clinical
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trials and (global) marketing, require substantial investment. In India,
three factors have reduced the importance of companies size, as
compared with elsewhere in the world. Local companies did not have to
engage in discovery and clinical trials, limited their operations to India
and its neighbors, and finally, were offered substantial protection under
the drug price control order (DPCO). For these reasons, bigger did not
necessarily mean better in India.
3.2.2 Markets
Some of the companies covered in this study, such as Lupin
Laboratories, Dabur Research, and Knoll Pharmaceuticals, sell the vast
majority of their products within India. Others, such as Sun
Pharmaceuticals, sell large percentages of output to India and other
emerging markets that have low approval and patent standards. A third
group sells bulks and branded generic formulations all over the world.
3.2.3 Present Technological Capabilities
Technological competence is developed gradually. Therefore, firms
that already have technologically intensive operations have a better
chance at rising to the level of their MNC competitors than those that do
not.
3.3 Strategies
This section evaluates some of the measures companies areadopting to ensure solvency after 2012.
3.3.1 Technological Strengthening
The most common strategic concern that 2012 has raised for
Indian pharmaceutical companies is the perceived need for technological
strength. Companies are faced with the realization that the only way they
can continue to sell first generation drugs (in the absence of licensing or
distribution agreements) is by discovering and developing them
indigenously. For Indian firms, there are two routes to this end. They can
either latch onto the skills of MNCs or they can embark on programs to
develop their own technical capacities.
Most Indian firms surveyed here have decided that new drug
discovery is an unfeasible short term goal and have consequently
pursued more modest technological programs. Sun and Lupin fall into
this category. While acknowledging that new drug discovery belongs on
their long-term horizons, they have devised strategies that afford
profitable operations without new drugs. Both have worked to bring more
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of the production process under their own control (through forward and
backward integration) while simultaneously sharpening their existing
R&D practices. Lupine, for example, prides itself on its innovative line
extensions. Even if these companies had more capital at their disposal,
they would be unlikely to pursue new drug discovery programs because
their managers firmly believe that technological competence needs to be
fostered gradually.
3.3.2 Redefining New Drug Discovery
Several Indian companies (e.g., Ranbaxy, DRL, Dabur, and
Wockhardt) are turning the prospect of increased patent protection to
their advantage by spearheading new drug discovery programs. Their
efforts have attracted much attention. Skeptics assert that Indian
companies are not large enough to discover and develop their own drugs
successfully. Indian companies also lack the experience of the major
players; leading MNCs have spent the better part of the twentieth centuryhoning R&D skills.
3.3.3 Public research
Most individuals surveyed for this paper were decidedly negative
about Indias public research facilities. In theory, public R&D labs should
be an invaluable resource to Indias smaller drug companies because
they allow them access to lead molecules and other specialized R&D
functions that they could not otherwise afford. In practice, however, the
current quality of such labs is so poor that relying on them for survival,
in the opinion of most experts, is one of the biggest mistakes companiescan make. A notable exception to this maxim is the Indian Institute of
Science (IIS), which has been quite successful at conducting clinical
trials. Whether or not other public research labs can follow IIS example
remains to be seen.
3.3.4 Leveraging Nontechnological Strengths
On the surface, 2012 seems to call for Indian companies to become
more technologically focused, and indeed, a number of Indias more
prominent firms (e.g. Ranbaxy, DRL, and Wockhardt) are pursuing this
goal by developing U.S. FDA-approved processes and drug discoveryprograms. As 2012 draws nearer, however, Indias pharmaceutical
companies must also expand and develop their nontechnological
strengths to keep pace with MNC competition. In keeping with this
broader development strategy, some companies (e.g. Sun, Lupin, etc.) are
undertaking less technologically oriented initiatives. Sun, for example,
recently expanded its R&D operations to place greater emphasis on
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developing state-of-the-art processes and novel delivery systems. Such
endeavors fall short of new drug discovery, but they represent important
steps toward technological self-sufficiency.
3.3.5 Growing Larger
Section 3.2.1 demonstrated that only large pharmaceuticalcompanies can engage in all four phases of the pharmaceutical
production cycle. Indian companieswhich have traditionally limited
themselves to domestic production and distributionmust therefore
grow larger to enter discovery and clinical trialsin addition totheir
current operations, and/or to expand to developed export markets. This
section reviews the means by which these companies are growing.
3.3.6 Help from Parent Companies
Some MNC subsidiaries (e.g., HMR, Knoll, and Glaxo) have adopted
a more relaxed posture toward 2012 than India-based companies. For
them, adaptation consists of waiting to see where opportunity lies andthen capitalizing on it by transferring resources from their parent
organization.
3.3.7 Export Focus
Liberalization has substantially increased the global
competitiveness of Indian pharmaceutical products, as local companies
have been forced to compete alongside MNCs in their home market.
Moreover, as the Indian market becomes more crowded, companies are
increasingly pressured to look elsewhere in order to expand their
revenues. For these reasons, the majority of the Indian companiesprofiled for this paper have taken specific measures to boost exports.
3.3.8 Localization of Operations for MNCs
Pharmaceutical industry experts have long argued that India is
especially well suited for drug production and discovery because it
possesses an abundant supply of highly skilled labor, a wide range of raw
materials, and a strong domestic market. However, a considerable portion
of pharmaceutical MNCs have either avoided India altogether or
maintained the minimum presence necessary to gain market access.
4. Appendix: Company ProfilesThis appendix reviews the operations of the companies surveyed
for this paper. Each company is reviewed with respect to principal lines
of business and strategic considerations for 2012.
4.1 Dabur Research Foundation
Dr. D.B. Ananatha Narayana,Head of R&D
Dr. Ravi Jain,Senior Manager
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Dabur was founded in 1884 as a pharmaceutical company, but in
the ensuing years, has greatly diversified into product lines ranging from
cheeses to veterinary products. Only 5 percent of 1994 turnover was
derived from pharmaceuticals, because since 1993, Dabur has
consciously undiversified and concentrated on doing fewer things
better. Still, Daburs scope of operations is vast when juxtaposed with
that of other pharmaceutical companies. Liberalization has affected
Dabur in a number of ways. First, increased competition has eroded
profit margins in many of Daburs markets. In the past, Dabur produced
as many products as possible to capitalize on its distribution expertise.
Now, Indias infrastructure is greatly improved and specialists can sell
products for less than Daburs total cost. In response to falling margins,
Dabur has abandoned failing products and pursued productivity-
enhancing measures such as freight cost control, process automation,
and a proposed merger with Dabur Research Foundation (at present,R&D is done a contract basis with the research foundation). Second,
stronger IP protection has enticed Dabur to build up its pharmaceutical
business and pursue new drug discovery.
4.2 Dr. Reddys Laboratories (DRL)
Dr. K. Anji Reddy,Chairman
Mr. K. Suresh,General Manager
Mr. T. Balamurali Krishna,Manager
Dr. M, Satyanarayana Reddy,General ManagerMr. P.V. Sankar Dass,Marketing Manager
Dr. G.O.M. Reddy (DRL Research Foundation),Vice President
DRL was founded as a bulk drug company in 1984. It has since
added formulations and new drug research to its docket of business
activities. DRL prides itself on its ability to reverseengineer any molecule
in six months. Its product mix comprises an even balance of high volume
(e.g., antibacterial) and high margin (e.g., cardiovascular) drugs. DRLs
primary objective is to serve the Indian market, but it is much more
involved in export markets than most of its competitors. In addition toexporting to other emerging markets, DRL exports a sizeable volume of
bulk drugs to Western markets. Along with Ranbaxy and Cipla, DRL has
evolved into a key player in the global generics market. DRL attempts to
have a physical presence in all of its export markets, through joint
venture tie-ups, wholly owned subsidiaries, and contractual
arrangements. Perhaps the most notable aspect of DRLs current strategy
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is its vigorous support of new drug discovery in India; in this respect, it
is arguably the most advanced Indian company.
4.3 Glaxo India Ltd.
Mr. Madhav B. Kurdekar,Executive Vice President
Glaxos global strength has traditionally been the design andproduction of leading edge, high margin drugs. For the past seventy-five
years, in order to participate in the Indian market, Glaxo has been forced
to sell its best drugs at prices well below what it charges elsewhere in the
world. Glaxo India also produces bulk drugs and formulations, and sells
drugs on behalf of other foreign companies that do not have Indian
presence. Glaxo India does not sell the entire product line of its parent
company, UK-based Glaxo
4.4 Hindustan Antibiotics Ltd. (HAL)
Mr. M.C. Abraham,Managing Director
Mr. S.R. Naik,General Manager
Founded in 1954, HAL is a state-owned company, and one of the
key building blocks of the Indian pharmaceutical industry. The
companys original objectives were threefold: job creation, life saving, and
technological diffusion. Today, HAL manufactures seventy-eight
formulations and four bulk drugs.
HALs corporate practices will not be affected by the advent of
stronger patent protection in 2012 becauseas a state-owned company
it has never engaged in semi-ethical practices such as reverse-engineering. However, other facets of liberalization and rising levels of
competition have challenged HAL. As other firms become more
competitive and more productive, HAL remains shackled by its
intractable bureaucracy.
4.5 Hoechst Marion Roussel Ltd. (HMR)
Mr. Debabrata Bhadury,Managing Director
HMR is a multinational chemical company that has had operations
in India since 1956. Over the past several years HMR India has
abandoned its petrochemical divisions in order to focus efficiently onpharmaceuticals, a practice which mirrors the intent of its parent
company. HMRs efficiency drive has also consisted of taking full
advantage of economies of scale by centralizing certain functions in
Frankfurt and establishing good communication throughout the HMR
family. As a result, HMR India is much more closely integrated with its
parent company than are most other MNC pharmaceutical subsidiaries
in India. Although it invests large sums of money to support pro-patent
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lobbies in New Delhi, HMR, like other MNCs, is unsure of what to expect
of the post-2012 patent regime. Rather than subjecting itself to such
uncertainty, it has pursued a strategy of relying on headquarters in
Frankfurt for products, technology, and marketing programs on an as-
needed basis. Meanwhile, it has divested itself of its local primary/bulk
R&D facilities. Interestingly, HMR has filed more patents in India than
any other drug company, and pending attractive patent protection, it may
well reinvest in its Indian operations after 2012. Whether or not it does
so will have almost no impact on the types of products it is able to
produce and sell in India.
4.6 Knoll Pharmaceuticals Ltd. (BASF Pharma)
Mr. D.M. Gavaskar,Managing Director & President
Dr. A.V. Prabhu,Vice President
In 1997, BASF acquired UK-based Boots Pharmaceuticals.
Subsequently, Boots India was restructured under Knoll, BASFs U.S.-based pharmaceutical subsidiary. In India, Knoll acts with considerable
autonomy from its corporate parent. D.M. Gavaskar, its managing
director and president, believes that autonomy is necessary for Knoll to
serve its markets adequately. Two reasons underlie this belief. First,
complex matrix structures, in which employees perform both regional
and functional duties, tend to inhibit distribution relationships, which
are critical to success in India. Second, in many respects the Indian
market differs fundamentally from the global market. For example, cough
and cold medicines are currently the second largest functional segmentin India, although they are of trivial importance on the world scene.
Adopting a more centralized approach would weaken Knolls individual
capacity to promote cough and cold remedies. In general, a certain
degree of autonomy is necessary to capitalize on Knolls strengthsa
strong distribution network and an intimate knowledge of the Indian
market for drugs. Knoll does not involve itself in exports (only 3 percent
of its products are exported).
4.7 Lupin Laboratories Ltd.
Mr. Lalit Kumar,President
Mr. Shrikant Kulkarni,General Manager
Lupin is a twenty-seven year-old Indian pharmaceutical company.
In the past, Lupin derived a considerable portion of its revenues from
producing bulk and intermediate drugs with no infringing processes,
many of which were bound by product patents in more developed
countries. It specializes in anti-TB medications and cephalosporins
(antibiotics derived from theCephalosporiumgenus of fungi).
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With the onset of government liberalization and the prospects of
increased patent protection after 2012, Lupin has decidedly changed its
course in several ways. First, it has shifted focus from low-margin bulks
to higher value-added products, such as novel delivery systems and
niche products for selective markets. Second, it has adopted an export
focus; in 1997, 55 percent of turnover came from exports.
4.8 Nicholas Piramal India Ltd. (NPIL)
Dr. A.G. Seshdrinathan,Vice President
Established in 1947, NPIL is engaged in the sale of
pharmaceuticals and glass products for the pharmaceutical industry.
Within pharmaceuticals, NPIL has a presence in the cardiovascular, anti-
infective, antacid, and dermatological segments of the market. With the
exception of cardiovascular, these are high-volume segments. NPILs
principal strategy is to build economies of scale in the production ofhigh-volume drugs, which it then markets in India and other countries
with similar drug markets, such as Africa, Southeast Asia, and Russia.
As it is strong in marketing and distribution, NPIL has also been
particularly active in marketing MNC products in India.
4.9 Novartis India Ltd.
Mr. Ranjit Shahani,Chief Executive Officer
Novartis India Ltd. was formed in 1997, following the merger of
Sandoz (India) and Hindustan Ciba-Geigy. The old Hindustan Ciba-Geigy(India) had traditionally focused on producing formulations of its parent
companys products for the Indian market, as well as a small number of
export markets with conditions similar to those of India. More recently,
Novartis India, as it is now called, has begun to produce bulk drugs for
use in local formulations and for export to other Novartis plants.
4.10 Ranbaxy Laboratories
Dr. J.M. Khanna,Executive Vice President & Member of the Board
Dr. Sudarshan Arora,Executive Director (New Drug Discovery)Dr. M.R. Marathe, Assistant Director
Ranbaxy is the largest Indian drug company, second only to Glaxo
India in terms of overall pharmaceutical market share. Because of its size
and global ambitions, Ranbaxy has received a large amount of press in
the last several years. Indeed, many analysts believe that Ranbaxy is
especially well positioned to compete alongside multinationals in future
decades. Parvindar Singhthe 55 year-old chairman of Ranbaxyis39
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convinced that Indias pharmaceutical industry is evolving in a way that
will make complacency a losing strategy in years to come. He believes
that Indian companies need drastically to reorient themselves to remain
competitive in the post-2012 marketplace.26 Ranbaxy is pursuing three
initiatives in response to its changing environment: new drug discovery,
globalization, and domestic strengthening. The company has also vowed
not to introduce any more pirated drugs, as doing so will threaten its
credibility.
4.11 Sun Pharmaceuticals Laboratories Ltd.
Mr. Rakesh Mehta,Vice President
Sun Pharmaceuticals, founded in 1983, makes formulations and
bulk drugs that are suitable for Indias market needs and those of foreign
markets with similar conditions. Within this context, Sun offers bundles
of branded generics in three therapeutic areasneurology, psychiatry,
and cardiologyas well as specialized, high margin products in segments
such as gastroenterology. None of these segments is subject to Indias
price control regime. Industry experts applaud Suns diverse product line
and its innovative marketing initiatives.
4.12 Wockhardt Ltd.
Mr. Vinod Pabi,Senior Vice President
Mr. Javed Hussain,Deputy General Manager
Dr. M.V. Patel,Director
Dr. S.K. Agarwal,Senior Scientist
Dr. Sudarsan Jagannathan,Scientist
Wockhardt is an Indian pharmaceutical company engaged in the
production and sale of bulks and formulations, large volume parenterals,
infant foods, and agricultural products. Its specialty therapeutic
segments are systemic antibiotics, cough and cold remedies,antispasmodics/anticholinergics/gastroprokinetics, analgesics,
antiseptics/disinfectants, and biotechnology. For the most part,
Wockhardt focuses on drugs with relatively high barriers to entry in
terms of technology. Wockhardts approach to pharmaceuticals is also
diseaseoriented.
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The company targets areas of medical need and then builds
baskets of drugs accordingly.
Prior to the governments liberalization programs in the early
1990s, Wockhardt restricted itself to formulation production, using bulks
purchased from other sources. Since then, it has emerged as a
prominent producer of bulks in its own right, and now produces almost
its entire requirement of bulk drugs. This has helped the company to
achieve relatively high operating profitability compared with its
competitors.
COMPANY PROFILE
Introduction
Dr. Reddys laboratories were founded by Dr. ANJI Reddy, a
entrepreneur scientist in 1984. The DNA of the company is drawn from
its founder and his vision to establish Indias first discovery led
global pharmaceutical company. The company is focused on creating
and delivering innovative and quality products to help people lead the
healthier lives.
Dr. Reddys is the research based company with vertically integrated
operations . The company develops ,manufacturers and markets a
wide range of pharmaceutical products in India and overseas. The
basic research program of Dr. Reddys focuses on cancer diabetes,
bacterial infections and pain.
Dr. ANJI Reddy, having moved out of sol ltd{ standard organics
limited } a company he had successfully co-founded, started Dr. Reddys
laboratories with $40,000 in cash and $1,20,000 in bank loan.
Today, the company with revenues of rs.194t company and youngest
among its peer group.
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Dr. Reddys create and deliver innovative pharmaceutical health
care solutions that help people enjoy longer healthier and more
productive lives through two parallel objectives.
A.Delivering affordable and accessible mediation to all parts of the
world.
B.Discovering , developing and commercializing innovative
medicines that satisfy unmet medical needs.
Scope of DR. Reddys world markets
I.Reddys generic formulations have also become very popular in
quality conscious regulated markets such as the us and Europe.
II.Reddys is the first pharmaceutical company from Asia pacific
(outside Japan) to be listed in new York stock exchange on
April 11,2001.
III.We manufacture active pharmaceutical ingredients and finished
dosage forms and market globally with a focus on united states,
Europe ,India, Russian.
IV.Generics businesses started operations in 2001 and focusesprimarily on the north America and Europe markets.
V.API is one of the major business divisions of Dr. Reddys, where
they are equipped with six multi-ton, state of the art facilities
which offer over 100 varieties of bulk actives and several key
intermediates. Where their API are exported worldwide, which
include both emerging as well as developed markets .
VI.Principal markets in the business segment include north America,
united states and Canada, Europe, middle east, south east Asiaand India.
VII.Dr. Reddys branded formulations are marketed in the country
across Russia ,Latin America ,south Asia, china and Africa.
MAKING OF DR.REDDYS
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In1973after gaining six years of expertise and experience in
the manufacturing and implementation new technologies in bulk drugs
from public sector company IDPL HYD. Dr .Reddys decided to set up a
basic drug unit at that time there were few other players in the
private sector at the end of the pharmaceutical value chain.
Reddys aim was to develop and manufacturing a wide spectrum
of bulk drugs to enable the pharmaceutical industry to launch their
formulations unfettered.
In the yr1976to manufacture for the first time in India ,a drug
calledmetrodinazolefor the treatment of amoebic dysentery the drugbecame a hit.
Dr .Reddys played a major role in pioneering the technology and
production ofsulphamethonazolean antibacterial in India.
MISSION :
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To be the first pharmaceutical company that successfully
discovers
takes its products from discovery to commercial launch globally.
CORE PURPOSE :
STATEMENT :To help people lead healthier lives.
The purpose of this statement answers the question why
do we exist ? we exist as an organization to help people lead healthier
lives by innovating to meet unmet medical needs and by
making pharmaceutical products affordable and available to a
larger cross section of society.
VISION :
STATEMENT :
To become a discovery led global pharmaceutical company .
The vision statement underlines two aspects of what Dr. Reddys
wants to become discovery led and global. In the words ofDr. ANJI
Reddy Dr. Reddys laboratories will innovate again not just for
mankind.
Vision statement helps in the following steps:
It provides long term direction to the company .
It challenges and inspires every member of Dr. Reddys .
It unites all members of the Dr. Reddys family in the pursuit of
a common goal.
It motivates us to define global benchmarks for each business
activity in Dr. Reddys.
VALUES :
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Quality :we are dedicated to achieving the highest levels of quality
In everything we do to delight customers, internal and external, every
time .
Respect for individual :we uphold the self esteem and dignity of
each other by creating an open culture conducive for expression of
views and ideas irrespective of hierarchy.
Innovative and continuous learning :we create an environment of
innovation and learning that fosters ,in each one of us, a desire to
excel and willingness to experiment .
collaboration and teamwork :we seek opportunities to build
relationships and leverage knowledge expertise and resources to
create greater value across functions, businesses and locations .
Harmony and social responsibility :we take utmost care to protect
our natural environment and serve the communities in which we
liveand work .
EXCELLENCE :we strive for excellence in everything we think say and do .
Excellence means continuously improving .
Striving to be the best .
Creating a benchmark for others to follow .
Excellence is execution .
It has no place for mediocrity .
Dr. Reddys being a one of the leading pharmaceutical industry to
launch their formulations , unfiltered. There were only a couple of
pharmaceutical companys at that time with the capacity to develop
newer drugs , bit they would not sell the bulk to other formulators .
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Here ,Dr. Reddys played a major role in pioneering the technology
and production of sulphamethonazole an anti bacterial in India.
Another dream was to do it on his own , because that was the
time that his second experiment with partnership was also rumbling.
He realize his dream shortly thereafter then he established Dr. Reddys
laboratories in 1984. The process and production of methyldopa was the
ultimate challenge. Chemists at Dr. Reddys streamlined and simplified.
The unit process for it in spite of the complicated nature of the
process for it and within a matter of 6 months the company was
ready to manufacture the drug.
The company has several distinctions to its credit. Being the
first pharmaceutical company from Asia pacific to be listed on the
new York stock exchange is only one among them.
Dr. ANJI Reddy is well know for his passion for research and
drug discovery. Dr. Reddys started its drug discovery programmed in
1993 and within three years it achieved its first break through by out
licensing an anti-diabetes molecule to novo nor disk in march 1997.with
this very small but significant step, the Indian industry went through a
paradigm shift in its image from being known a just copycats to
innovators!
Through its success, Dr. Reddys pioneered drug discovery in
India. There are several such inflection points in the companys
evolution from a bulk drug {API} manufacture into a vertically integrated
global pharmaceutical company today.
Today , the company manufactures and markets API(bulk
actives), finished dosages and biologics in over 100 countries
worldwide, in addition to having a very promising drug discovery
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pipeline . when Dr. Reddys started its first big move in 1986 from
manufacturing and marketing bulk actives to the
domestic(Indian)market to manufacturing and exporting difficult-to-
manufacture bulk actives such as methyldopa to highly regulated
overseas market, it had to not only overcome regulatory and legal
hurdles but also battle deeply entrenched mind-set issues of Indian
pharmacy industry, in stark contrast, is know globally for its proven
high quality-low-cost advantage in delivering safe and effective
pharmaceuticals .
This transition although and often-perilous one, was made
possible thanks to the pioneering efforts of companies such as Dr.
Reddys laboratories.
Today, Dr. Reddys continues its journey. Leveraging on its low
cost, high intellect advantage. Foraying into new markets and new
businesses .
Taking on new challenges and growing stronger and more
capable . Each failure and each success renewing the sense of purpose
and helping the company evolve.With over 950 scientists working
across the globe around the clock , the company continues its
relentless march forward to discover and deliver a breakthrough
medicine to address an unmet medical need make a difference to
peoples lives worldwide . and when it does that, it would only one the
beginning an yet it would be the most important step. As Lao Tzu
wrote long time ago, Even a 1000 mile journey starts with a single
step.
BUSINESSES :
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DR. Reddys is a vertically integrated , global pharmaceutical
company with proven research capabilities and presence across the
pharmaceutical value chain . we manufacture active pharmaceutical
ingredients and finished dosage forms and market them globally, with
a focus on united states ,Europe , India and Russia .In addition , the
drug discovery arm of the company conducts basic research in the
areas of diabetes ,cardiovascular, inflammation and bacteria infection.
CORE AREAS :
The core businesses of active pharmaceutical ingredients (API)
and branded formulations are well established with an impressivetrack record of growth and profitability. Our generics business started
operations in 2001 and focuses primarily on the North America and
EU markets . we have built a robust pipeline of generic products ,
which will help us drive growth in the medium and long term . in
addition ,the company is investing in creating businesses of the future
the innovation led businesses- of specialty and drug discovery.
The revenues for fiscal 2012 wereU.S.$446 million.
ACTIVE PHARMACEUTICAL INGREDIENTS :
Active pharmaceutical ingredients (API) is one of the major
business divisions of Dr. Reddys . we are equipped with six multi-ton,
state-of the art facilities, which offer over 100 varieties of bulk actives
and several key intermediates. our active pharmaceutical ingredients
are exported worldwide ,which include both emerging as well as
developed markets . Principal markets in this business segment
include north America (the united states and Canada),Europe, Middle
East , SE Asia and India .
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Their expertise in organic synthesis ,process development and a
controlled supply chain enables us to provide our customers with
high quality bulk actives at competitive prices . we are aggressively
building our product portfolio to cater to generic players in the emerging
markets and generic and patent challenge formulators in regulated
markets .
Dr. Reddys offers an unparalleled portfolio to its customers ,
who include innovators and generic formulators world wide . The
products are well documented according to the latest ICH and other
regulatory guide lines.
All the above advantages make Dr. Reddys API ,an ideal partner in
the product development efforts.
INTEGRATED RODUCT DEVELOPMENT :
The key element in generic drug development is the need for
speed . there is a growing need to reduce the time in which a cheaper
generic alternative is provided to the masses , staying within theregulatory framework and honoring the IP imperatives . They have as
many as 200 scientists working on process innovation and
simplification manufacturing cycle time reduction , waste and energy
reduction and continuous process improvement.
Rachna , is a project management approach that drives their
product development process. This approach ensures a smooth work
flow from product selection developing the synthesis route in R&D
LAB(s), plant scale-up and validations- finally culminating in the filing
of a drug master file.
The focus is on using the most advanced techniques in the
product identification and structure elucidation . our scientists have
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